The beta of Facebook stock has been estimated as 1.8 using regression analysis on a sample of historical returns. A commonly-used adjustment technique would provide an adjusted beta of
A) 1.20.
B) 1.32.
C) 1.13.
D) 1.53.

Question

Quizplus · Accepted Answer

The commonly-used adjustment technique for beta is the Blume adjustment, which adjusts the raw beta towards the market beta of 1. The formula is: Adjusted Beta = (2/3 * Raw Beta) + (1/3 * 1). For a raw beta of 1.8, the adjusted beta is (2/3 * 1.8) + (1/3 * 1) = 1.53.

The Beta of Facebook Stock Has Been Estimated as 1